Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company
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Revista de
Administração
Contemporânea
Journal of Contemporary Administration e-ISSN: 1982-7849
Case for Teaching
Avon Brazil: Optimization of Logistics Processes in a
Direct Selling Company
Avon Brasil: Otimização dos Processos Logísticos em Companhia de Vendas
Diretas
Fabio Medeiros1
Luiz Carlos Di Serio1
Alessandro Moreira1
INTRODUCTION
On that Thursday in January 2017, as Pedro headed During the journey, Pedro remembered the previous
to his first day of work at Avon Cosméticos Brasil’s main week’s video-conference, when he was officially introduced
office, he was reflecting on the paths that had brought him to to the entire executive board of the Brazilian operation.
that moment in time. After several years working in smaller
affiliates in Latin America, he was now about to become the He recalled the impressions he had of each member of the
supply chain director, a position he had long wanted, of one board, but mainly of the comments made by José Roberto,
of the company’s main operations worldwide. who was known internally as JR, and who had been the
He was very happy to be returning to his own country, manager of the logistics area for a long time, but had now
but he was aware of the challenge he had accepted when he been assigned to a new position in the plant’s management
had been invited to take over the position three months team. In a friendly manner he said how fortunate Pedro
earlier by the regional vice president: old competitors were was to be arriving in Brazil when an investment project had
growing, new entrants were eager for market share, and he already been put together that was awaiting final approval
was going to an operation that was very proud of its past
by the head office: “The whole project has already been
achievements, but that needed to become more efficient
in various processes. Under his responsibility, logistics structured and approved locally, and the budgets have been
activities were going to be decisive for the good results of received... You’ll have to finish preparing the material to
the direct selling company. present it for global approval in May... Isn’t that great?”
1. Fundação Getulio Vargas, Escola de Administração de Empresas de São Paulo, São Paulo, SP, Brazil. JEL Code: A2, L66, N16.
Editor-in-chief: Wesley Mendes-Da-Silva (Fundação Getulio Vargas, EAESP, Brazil)
Associate Editor: Paula C. P. de S. Chimenti (Universidade Federal do Rio de Janeiro, COPPEAD, Brazil)
Cite as: Medeiros, F., Di Serio, L. C., & Moreira, A. (2021). Avon Brazil: Optimization of logistics Reviewers: Both of the reviewers chose not to disclose their identities.
processes in a direct selling company. Revista de Administração Contemporânea, 25(4), e190212. Peer Review Report: The disclosure of the Peer Review Report was not authorized by its reviewers.
https://doi.org/10.1590/1982-7849rac2021190212.en
Received: June 04, 2019
Last version received: October 19, 2020
Accepted: December 07, 2020
# of invited reviewers until the decision:
1 2 3 4 5 6 7 8 9
1st round
2nd round
3rd round
4th round
5th round
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 1Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
JR had led the development of this logistics way of the services provided to its customers. In this context,
investment project, which comprised buying new the concepts of lean manufacturing and the series of tools
equipment and undertaking expansion work. Internally, such as 5S, kaizen, just in time, TPM, etc., started to play
the project was called the Avon+ Project. an essential role in the improvements that were applied.
Especially in times of low growth rates, recessive economic
Pedro took on the position with its various challenges environments, and fierce competition, the optimization of
in this hectic business environment, and had questions: logistics processes was essential for protecting profitability
Should he pursue final approval of the capital investment and guaranteeing company survival. This aspect was
needed for the Avon+ Project, an investment plan that had underlined by the CEO of the Brazilian operation: “... our
already been outlined by his predecessor, and simply take market is increasingly competitive, the pressure on prices
credit for implementing it? Or should he assess the current and product innovation is constant. Logistics processes are
status of the processes and use continuous improvement a determining factor in our direct sales business and it is the
tools that could increase the efficiency of the logistics company’s constant task to seek more efficiency in order to
processes, reduce costs, increase service levels and, as a result, improve the profitability of the operation.”
reduce or even avoid any capital investment altogether?
Starting in 2015, the size of the cosmetics, toiletries,
and fragrance (CTF) market shrunk, according to studies
THE MARKET that were published in the Market Panorama produced
by Abihpec (Brazilian Association of Personal Hygiene
During the 2010s in Brazil, major corporations had and Cosmetics Companies) (Figure 1). According to this
been working hard to improve their logistics networks, and association, there were more than 2,600 companies in this
to understand the strategic importance that the operations sector in Brazil, 20 of which are considered large, with net
area has, not only in relation to the release of resources sales in excess of R$ 200 million/year, and representing
through cost reductions, but also for generating value by three quarters of the total market.
General market growth vs. cosmetics, toiletries and fragrance market
15,0%
10,0%
5,0%
0,0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-5,0%
-10,0%
-15,0%
General Market CTF Market
Figure 1. General market growth vs. cosmetics, toiletries, and fragrance market.
Source: Prepared by the authors based on Abihpec (2018).
According to Ilos (Logistics and Supply Chain was even higher. A study published in 2016 by the
Institute), distribution and logistics costs corresponded Boston Consulting Group showed that 26% of all beauty
to 12.3% of GDP and represented 7.6% of company
net revenue, on average, considering transportation, and personal care products were marketed through direct
inventory, and warehousing costs. sales and that logistics costs represented up to 13.1%
In direct selling companies, where there is a of the revenues of these companies that covered a large
distribution and home delivery process, this percentage geographical area.
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 2Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
CASE STUDY: AVON COSMÉTICOS BRASIL expanded its business beyond the franchise model; Jequiti, a
company that was part of an important Brazilian economic
Avon Cosmetics (Avon Products Inc.), an American group; Mary Kay, a strong international competitor; and
company, was founded in 1886 by David McConnell Hinode, which had enjoyed exponential growth and had
in Manhattan, New York. Initially called the California sales of around R$ 2.7 billion.
Perfume Company, the company was renamed Avon in
1930. It started the concept of the direct selling of cosmetic The direct selling model
products, thus providing thousands of women with work
opportunities at a time when they could not even vote. The World Federation of Direct Selling Association1
Internationalization of the company started in the represents the most important direct selling associations
1920s and 1930s when it reached Canada and Europe. In in the world, including ABEVD (Brazilian Association of
the 1950s, it arrived in Latin America and in the 1980s in Direct Selling Companies). It defines direct selling as a
Asia and Africa. Avon has been operating in Brazil since system for marketing consumer goods and services based
1958. In 2019, the company reported on its sales and on personal contact between sellers and buyers, outside a
distribution operations in more than 70 countries via its 6 fixed commercial establishment. There are two categories
million female sales representatives.
of this model: (a) the more traditional, where there is only
According to the 2015 annual report, Avon’s total one level of sales representative, or consultant, who buys
billings globally were $5.7 billion, with 74% of sales in the the products from the companies and sells them to the end
cosmetics category and the other 26% of its ‘fashion and consumer; and (b) multilevel companies, where the sales
home’ business, which included beauty, fashion, and well- rep can receive commission on his own sales, but also on
being products and household items. In this year, Avon the activities of the other sales reps who are in his network.
was the second largest direct selling company in the world,
and leader in the cosmetics segment. There is an important difference between direct
In the mid-2010s, Avon’s Brazilian operation was selling and traditional retail as far as the value chain
the most important in sales volume in the world. It also is concerned. In the traditional model, there may be
had the biggest sales force, with approximately 1.5 self- three agents capturing value between the plant and the
employed sales reps. The company had a plant in São consumer; a distributor, a wholesaler, and a retailer from
Paulo and distribution centers in Bahia, Ceará, and São which the final consumer purchases the product. In direct
Paulo, the latter being the most important in terms of selling, consultants or sales representatives are those who
operation volume. The company had the highest level of collect part of the value of the business between the plant
construction certification for preserving the environment, and the end customer (Figure 2). This allows direct selling
and was highly automated. companies to have a relatively higher gross margin, but
Avon Cosméticos’ main competitors in the Brazilian the distribution logistics costs, because of the door-to-door
market in direct selling were Natura, which reported delivery model, are significantly higher, meaning that the
revenue of R$ 7.9 billion; O Boticário Group, which had operating profit of both models is similar.
TRADITIONAL
MODEL
PLANT DISTRIBUTOR WHOLESALER RETAILER CONSUMER
DIRECT $
SELLING
MODEL
SALES
PLANT CONSUMER
CONSULTANT
Figure 2. The value chain in the traditional system vs. direct selling.
Source: Prepared by the authors.
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 3Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
Direct selling in the world further 9% each, and Brazil, which represented 5% of the
sales. Figure 3 shows the world’s ten biggest direct selling
According to WFDSA data, the direct selling market companies in sales volume in 2016.
worldwide, which includes a range of different products, The leading category in direct sales worldwide was
reached $ 182.6 billion in 2016, representing growth of well-being products, with 35% of global sales, followed
1.9% compared to the previous year. The US and China by cosmetics with 32%. In third place, with 12%, were
were the biggest markets, each with 19% of global sales. durable products for the home, followed by clothes and
They were followed by Germany and South Korea, with a accessories with 7%.
Top 10 direct selling companies in the world
Position, country of headquarters, and billings in USD billion in 2016
Vorwerk, Germany,
Amway, USA, $8.8bi Avon, USA, $5.7bi Herbalife, USA, $4.6bi Mary Kay, USA, $3.5bi
$4.2bi
Infinitus, China, $3.4bi Perfect, China, $3.1bi Quanjian, China, $2.9bi Natura, Brazil, $2.3bi Tupperware, USA, $2.2bi
Figure 3. Top 10 direct selling companies in the world.
Source: Prepared by the authors with information from Direct Selling News (2017).
The logistics operation of Avon Cosméticos much lower than in developed countries (which might limit
Brasil: A diagnosis in search of optimization companies investing in leading edge technologies, because
the use of labor is economically more viable), Avon was
Automation technologies for logistics operations considered a leader in automation with the most modern
have evolved significantly in Brazil since the 1990s, with equipment available.
the economy stabilizing and opening up to international Improving logistical efficiency through the acquisition
business. Many technologies have been developed for of equipment and physical extensions had, until then, been
automating warehousing and order picking processes, as well the modus operandi of the Brazilian affiliate. It was this type
as systems for optimizing transport routes, from systems that
of investment that created the image of a pioneer and made
integrate the entire logistics chain — supplier, manufacturer,
Avon a benchmark in the market.
and distribution center (DC) — to highly-automated
equipment for receiving and warehousing products, for Pedro also noticed people’s pride in the company,
sorting and dispatching orders, and for loading delivery which was positive and desirable for any manager who
vehicles. Even in an emerging country, where labor costs are wants to diagnose and implement change. But he also
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 4Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
noted that this pride was tinged with certain arrogance, as the project; investments in marketing and new product
if the company’s history in the logistics area guaranteed its development were the most impacted.
current and future competitiveness. In the words of one of
Pedro spent the first three weeks of work going through
the supervisors: “... we’re good and we’re a benchmark in
the usual internal integration process and understanding the
what we do. We deliver products to millions of customers
Avon+ Project. He concluded that a more detailed diagnosis
... there are always other companies wanting to get to know
of the processes was needed, so over the following five weeks
our logistics area ...” According to another supervisor: “we’ve
he decided to concentrate on analyzing and diagnosing the
always had the best equipment available. This is what sets us
situation of five large and important activity groups in the
apart from the competition.”
area.
Pedro knew that despite the image that had been built
up over the years, there was a lot of work to be done in the 1) Product reception
area to put Avon at the forefront of logistic processes again,
because the reality was that at that time, in addition to the The product reception process is the operational
low efficiency of the operation, there were a lot of comments stage within the supply chain, where the level of maturity
coming from the sales force about the poor quality of the of the whole chain becomes apparent. It is at this stage in
service. the process that the accuracy of the inventory that enters the
warehouse following the preliminary stages, such as demand
The Avon+ Project, which had been conceived by the planning, purchasing, manufacturing, and internal logistics,
previous supply chain management, followed the pattern is detected.
of decisions taken on previous occasions in the affiliate: it
tried to solve logistics problems by acquiring new and more In its main distribution center, this operation had an
modern equipment, carrying out expansion work and hiring average vehicle unloading time of 48 hours, which included
new people. everything from the vehicle arriving at the gatehouse until
it left by the same way. According to a 2015 survey by
With the growth of the company in previous years,
Ibope, which measured 357 companies in 11 sectors in the
the product reception and warehousing areas had become
Greater São Paulo metropolitan area, the average time of
problematic: the space for unloading was no longer big
this operation was around 5 hours, which showed there was
enough for all the traffic it received, and the storage area
an important opportunity for managing this process.
was full to capacity, so expansion work was being planned.
A consequence of this physical expansion was that the new (a) Yard management — the movement of trucks was
space would entail a reduction in the truck parking area. The intense, and there were no clear signs or procedures in place
solution found was to rent land nearby and set up a waiting for organizing the flow of vehicles.
structure, where the trucks would wait before being directed (b) Dock management — the unloading space of
to the parking lot of the main building where they would each dock did not have enough pallets for unloading an
unload their goods. entire truck. Goods were stored after unloading and each of
New support equipment, such as hydraulic leveling the pallets had been manually checked, which was done by
ramps, forklifts, conveyors belts, and stacker cranes, would way of notes. There was no standardization of the codes or
be acquired for the new docks in the goods reception area, the information that would be needed on each pallet.
for the warehouse and for the order picking area, thus (c) Stock occupation — there were not enough
expanding total capacity. positions for the pallets in the process that had existed until
The total investment of the project was approximately then, and it was going to be necessary to establish a routine
$4 million, with an estimated lead time of eight months for balancing the entries and exits of the distribution center
before the potentially expected results would begin to operation in order to maintain the most adequate stock
appear. It would start with formalizing the rental agreement, occupation level to avoid a bottleneck.
and adapting and building the truck parking lot structure, (d) Supplier scheduling — there was no prior
ending with the new equipment being finally installed. scheduling of product deliveries, because the perception
For JR, the former director, convincing the CEO was that this removed flexibility from the supplier and
and other colleagues on the board that the solution for the docks when receiving the goods. Suppliers were also
the internal logistics problems and for improving service reluctant to accept the concept of prior scheduling: in a city
levels involved an investment of millions of dollars was like São Paulo, where traffic interferes with the dynamics
an exhausting process. After all, the whole company had of deliveries, the team responsible believed that imposing a
to suffer cuts and reductions in order to accommodate time slot was an additional problem.
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 5Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
(e) Management of products on consignment from the packing equipment. In the case of Avon, the packing
other companies and the flow of obsolete products — part area was adequately sized in terms of equipment, but it
of the inventory was constantly dedicated to low turnover worked with an OEE (overall equipment effectiveness, or
items and this, of course, should comprise a very small part efficiency index of the operation machinery) of less than
overall. In mid-2016, stocks in this particular operation 60%, when the ideal figure is above 90%. Huge failures and
reached more than 35% of those destined for low-turnover long downtimes were detected for emergency maintenance
items. and minor repairs.
(f ) Performance indicators — in addition to the During the diagnosis process, inefficiencies were also
situations noted above, there were no known, standardized detected in an area that was considered simple and of little
productivity indicators in the reception process stages. relevance: the final box labeling process. If all the previous
Each dock had its own team of workers and none of the steps reached the desired level of efficiency of 90%, then
professionals had productivity notes that were minimally the labeling area would not have the necessary capacity for
comparable between teams. dealing with it.
Pedro wondered about the future impacts of increasing Both the acquisition of new equipment and the hiring
the capacity of these sub-activities using new machinery and of personnel were included in the Avon+ Project.
building extensions without a proper transformation of the
way these activities were carried out. So-called ‘campaign changes’ took place periodically:
these were sales campaigns in the cycle that required the
2) Warehousing and moving products position of a product to be reconfigured in order to gain
in productivity. It was found that in each cycle, DCs spent
The finished goods warehouse in Avon’s main 5% to 10% of all the available worktime in activities related
operation was in a very complicated situation from the point to changing campaigns. Comparing this with a common
of view of its processes. There were bottlenecks in receiving manufacturing process in companies, this would be the
and warehousing products because of an occupation rate equivalent of setting up machines when the line is changed
that exceeded 117%, which meant that there were products from one type of product or production to another. How
stored in corridors and places outside the main building. could losses and waste be reduced and, mainly, how could
the distribution center’s campaign change indicators be
To solve the product reception and warehousing balanced?
situations, for example, the Avon+ Project was considering
physically extending the area: part of the parking lot would Pedro soon concluded: “Concepts and pillars of total
be used for construction and, since the space for trucks productive maintenance would be essential here.”
would reduce, a nearby plot of land would be rented for
parking. 4) Transporting and delivering orders
“Building work and new machinery are going to Many variables needed action by the company due to
solve the problem...” thought Pedro. “... but how long is it relevant elements that had an impact on direct sales, such as
going to last?” Initiatives for optimizing inventory density, geographic spread, home delivery, high order numbers, and
improving the accuracy of forecasts, and increasing storage short sales cycles. Some of the topics at this stage were:
and supply movement productivity would also generate
consistent results. So creating a culture of continuous process a) Punctuality in deliveries
improvement would be an important internal change: “But This refers to delivery punctuality and uses a term
is this the right moment for such an initiative?” Pedro that is known in the market as ‘on time deliveries’ (OTD),
thought. which is the percentage of deliveries made on time in
relation to the total number of deliveries to be made on a
3) Picking orders given and promised date. At Avon, this rate was 92%, and
discussion revolved around whether improving this figure
The order picking stage is when orders are processed
might positively affect sales and the loyalty and engagement
for dispatch to end customers. At this stage, management
of the sales representatives.
indicators, such as productivity, safety, and quality were
mastered better than at any other stage in the operation. b) The satisfaction of the sales representatives
Most of the resources, people, and machines were also Sales reps are important players in the Avon direct
allocated to this stage in the process. selling process and their satisfaction with the company
In direct sales distribution centers it is common to in various aspects, including logistics issues, translates
oversize the picking equipment (sorting), but to undersize into greater engagement and bigger sales. At Avon, sales
Revista de Administração Contemporânea, v. 25, n. 4, e-190212, 2021 | doi.org/10.1590/1982-7849rac2021190212.en| e-ISSN 1982-7849 | rac.anpad.org.br 6Avon Brazil: Optimization of Logistics Processes in a Direct Selling Company F. Medeiros, L. C. Di Serio, A. Moreira
reps were classified into several groups according to their FROM DISCUSSION TO PRACTICE:
marked characteristics, such as: higher sales (top sellers),
opinion makers, entrepreneurial sales reps and consumers.
HOW CAN THE EFFICIENCY OF AVON
This classification had to obey multiple factors, such as the COSMÉTICOS’ LOGISTICS PROCESSES BE
average ticket, length of the relationship, geographic region, IMPROVED?
among others.
c) Vehicle availability and load factors In direct selling, logistics efficiency plays a
Vehicle availability and delivery efficiency were fundamental role in customer and sales rep satisfaction, and
fundamental factors for the success of transport operations in improving sales results and margins. Avon Cosméticos
and elements of competitive differentiation that could was going through a period of decreasing market in the
result in relevant aspects, such as customer loyalty and the
engagement of sales representative teams. Contracts with middle of the 2010s when Pedro, the new supply chain
transportation service providers ensured consistent and director, assumed the position in Brazil.
measurable service levels that made control mechanisms Based on internal discussions and diagnosis of the
possible.
status of Avon Cosméticos’ logistics operations, Pedro
The operation investigated showed consistency in its could proceed with the approval of the Avon+ Project:
vehicle availability indicator of more than 99%, a comfort
improving the efficiency of logistics processes by acquiring
level experienced by few companies in the market. The
transportation area played an exemplary role in leading new equipment and physical expansion was the path that
the search to improve vehicle load factors that, because of was known and historically used by the company in Brazil.
the configuration of sales and fluctuations, were not always
On the other hand, Pedro foresaw a series of
complete.
benefits for the company that would result from engaging
d) Risk management in transportation the leaders of the areas and using the well-known tools
With regard to public security, there were regions in of continuous improvement. He could revolutionize
the country with high accident rates that needed to be dealt the way the affiliate acted with regard to increasing its
with by Avon, as the losses recorded were considerable in
productivity and improving service levels, by initiating
these places, and led to increased costs. Pedro needed to use
a methodology to find solutions for minimizing these losses. a transformation in the company’s innovation culture in
Brazil. He estimated that the investments necessary for
5) Reverse logistics developing people, training, eventual consultancy services,
and the occasional purchase of equipment were around a
Reverse logistics was the process whereby products
quarter of the planned investment in the Avon+ Project.
from exchanges, returns, or customer complaints were
reprocessed at Avon’s distribution center. These could either But the path was long and uncertain: would he be able
be reincorporated into inventory, or destroyed if there was to implement changes and generate results in a timely
no possibility of reuse. manner if he chose this path?
This operation at Avon was outsourced to a logistics Pedro needed to make a decision quickly and it
operator hired to separate products that came back and that had to be shared with Avon Brasil’s board of directors —
could still be used. But there was no agreed service, and the
process was slow and not integrated into the distribution May was less than 30 days away and the affiliate needed to
center’s operations: when these products were reincorporated present its numbers and projects at the company’s global
into inventory, they were commonly unsaleable. meeting.
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Teaching Notes
ABSTRACT RESUMO
This case study aims to develop in each student analytical competencies by Este caso de ensino visa a desenvolver no estudante a capacidade de análise
evaluating current logistics processes and, from this understanding, to use situacional de processos logísticos e, a partir desse entendimento, utilizar
the knowledge gained on tools and theories of continuous improvement conhecimentos adquiridos sobre ferramentas e teorias de melhoria contínua
to propose solutions and discuss strategic alternatives for the company to para propor soluções e discutir alternativas estratégicas para a companhia
melhorar seus processos. A eficiência nas operações logísticas tem papel
improve its processes. Efficiency in logistics operations plays a key role in the
fundamental nos resultados de empresas de venda direta, afinal, são
results of direct sales companies because there are thousands of customers milhares de clientes e entregas feitas ponto a ponto que levam complexidade
and daily deliveries that bring complexity to the process. The new Supply ao processo. O novo diretor de supply chain da Avon Cosméticos assumiu
Chain Director took over the position in a difficult period of falling market a posição no país numa fase de dificuldades e mercado em queda. Desse
in the country. Thereby he implemented internal discussions to evaluate modo, ele implementou discussões internas para levantar o status de vários
the status of various processes and to engage leadership. He intends to processos logísticos e engajar as lideranças das áreas. Assim, ele pretendia
find ways to improve logistics processes through capital investments or by encontrar formas de melhorar os processos logísticos seja por meio de
using continuous improvement tools that could provide cost reductions investimentos de capital, seja utilizando ferramentas de melhoria contínua
que proporcionassem reduções de custos e aumento dos níveis de serviço.
and increase service levels. The case can be used in undergraduate courses,
O caso pode ser usado em cursos de graduação e pós-graduação stricto e
graduate courses, and also in professional education in themes related to lato sensu, além de educação profissional com temas ligados à gestão, supply
business management, supply chain, logistics, and industrial operations. chain, logística e operações industriais.
Keywords: logistics; supply chain; optimization; direct selling; continuous Palavras-chave: logística; supply chain; otimização; venda direta; melhoria
improvement. contínua.
EDUCATIONAL OBJECTIVES AND and service levels. This was historically the company’s
RECOMMENDED USE OF THE CASE modus operandi when it came to projects for improving the
performance of its logistics processes. On the other hand,
The teaching objectives of the case study are to: he could head up a process optimization initiative and
(a) stimulate discussion with regard to the status and use known tools for continuous improvement, reducing
effectiveness of Avon Cosméticos Brasil’s logistics processes; capital investments and reverting it to the benefit of
and (b) stimulate discussion based on the concepts and those areas that had been most impacted when the Avon+
tools of continuous improvement. In addition to issues Project was approved locally, such as marketing and
inherent in good business management, it is expected that product development. This trade-off must be explored and
students will use the theoretical tools that are available in appreciated when discussing and analyzing the case.
continuous improvement and be able to explain how theory
can help increase productivity, reduce costs, and increase This case can also be studied from the perspective of
competitiveness. Students are expected to reflect on the a series of approaches and methodologies for continuous
challenges experienced by the company’s professionals, improvement, while focusing specifically on one of them.
understand the dynamics of this industry, and seek to This will depend on the level and maturity of the students
associate the various approaches and methodologies for and the depth of the analysis of the tools of continuous
continuous improvement for solving the dilemmas of the improvement that is established by the teacher when
supply chain director. If, based on study of this case, we can developing this course.
arouse in students a constant questioning of the effectiveness
of the processes that surround them, then we understand Recommended additional bibliography
that the case will have made a notable contribution.
Pedro was under pressure to choose between two In addition to the material listed in the bibliography,
alternatives. On the one hand, he could pursue approval of we suggest other texts that can assist in discussions and
the Avon+ Project that he had inherited from the previous contribute toward increasing students’ knowledge of relevant
management, and which consisted of investments in aspects addressed in the case: Lawson and Samson (2001),
equipment and physical expansion to improve productivity Teece (2010), Johnson, Christensen and Kagermann (2008),
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Quinn and Hilmer (1994) and Frei (2006). The complete (political issues may arise), and his view on the priorities and
references are listed in the end. impacts of each alternative.
Question 3. How do lean concepts contribute to the
DATA SOURCE correct diagnosis and improvement of the logistics
processes? Name a tool that could be used and why. List
The Avon Cosméticos case study provides important the main problems found by Pedro in the goods reception
information about the status of the company’s logistics area after he carried out his diagnosis.
processes and the challenges faced by the new supply chain If the student has already had contact with the lean
director when he took over the Brazilian affiliate, one of the concept in previous sessions of the course (preferable), or
most important worldwide, in the mid-2010s. He needed to has to research the subject when assessing the case, we would
optimize processes, reduce costs, and increase profitability stress the importance of the concept in the search for process
for the business to survive. efficiency.
In preparing the case, primary data were collected Question 4. The order picking area had the largest
by the first author, an Avon executive: interviews were allocation of resources, people, and machinery, but Pedro’s
conducted with those leaders of the operations areas who diagnosis indicated that it was not very effective and that
were involved in the company’s logistics operation. The there were several points for improvement. How could
author’s experience with the change process implemented at the concept of TPM (total productive maintenance) help
Avon also enriches the description of the case. Public data with the constant machine downtimes?
from the direct selling market and the global and Brazilian
personal hygiene market were also used. The TPM concept is relevant for solving some of the
problems raised by Pedro. It is important for the students
to have had contact with the concept previously so they can
SUGGESTED QUESTIONS FOR DISCUSSION develop possible courses of action.
Question 5. Reverse picking was ineffective, despite its
A set of questions was prepared that can guide potential for increasing the availability of products for
discussion of the case, but the authors stress that neither sale. Do you think that the problem was caused by the
the discussion nor the questions should be limited to the fact that Avon outsources this activity? What could be
material presented here. The teacher must feel free to explore done about its partnership with the logistics operator?
the case using other approaches or questions that generate Under what conditions and why would internalizing the
pertinent reflections in his/her students. reincorporation of products make sense in your opinion?
Question 1. In your opinion, what are the advantages and
disadvantages from the company and Pedro’s perspective ANALYSIS OF THE AVON COSMÉTICOS DO
of continuing with the Avon+ Project?
BRASIL CASE
For an analysis of the case in class, it is suggested
that half of the students split into groups and discuss the The case suggests discussing the strategic path to be
disadvantages, and the other half discusses the advantages. taken by Pedro from the two alternatives that are available
They then subsequently share their findings. If they have to him: pursuing approval of the Avon+ Project, which
not already been explored, the following points should be proposed hefty investments in equipment and expansion, or
discussed by the groups: (i) Do you consider that the internal diagnosing current processes in greater depth and proposing
processes were properly assessed, mapped out, and compared the use of tools for improving them, thus reducing the
to market benchmarks when developing the Avon+ Project?; capital investment required.
(ii) Might the negative impacts on investment levels in
two important areas, marketing and product development, The authors’ previous experience shows that the
be reflected in Avon’s future competitiveness vis-à-vis its time needed for discussing the dilemmas and reaching a
competitors? conclusion is effective when distributed as follows: at most
20% of the total time available for discussing the Avon+
Question 2. How do you assess Pedro’s concern with Project option, and at least 80% of the time discussing the
regard to the closeness of the global meeting and the option of improving the logistics and packing processes or
need to develop the new project? Based on what the case sub-activities.
showed, do you think this could be a real problem?
Pedro took over at the Brazilian affiliate facing a
The aim is to have a discussion on the relevance of series of challenges and a logistics investment project that
Pedro’s diagnosis, his concerns with the timing and deadlines had already been approved locally. The company was trying
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to optimize its processes and improve service levels, and it clear advantages that would be readily accepted both locally
was believed that the Avon+ Project would, once again, put and globally:
the company at the forefront of logistics operations. Based . A significant reduction in planned capital investments
on information about the case, the following are points that in Avon+;
favor the Avon+ Project:
. The freeing-up of resources for the new product
. A common strategic decision in the company and development and marketing areas;
one that is less susceptible to disagreement;
. The start of important changes in the company, with
. Security: from Pedro’s point of view, it proved to the creation of a culture that focused on continuous
be the least risky decision, taking into account the improvement.
background and the effort already invested in it;
Furthermore, if everything went according to plan,
. Readiness: the project had already gone through the the Avon+ Project would only start showing full results from
local approval stage and was practically finalized for the eighth or ninth month after implementing it. In this
global presentation; time span, Pedro could start a process improvement project
. Politically easier: it had already been approved by the in several areas and begin reaping results. This was, therefore,
local board. Pedro would avoid further discussions a viable initiative and a clear opportunity to improve service
and the process of convincing people that a new levels with less investment.
project would generate value.
Reception: Where the problems begin
The disadvantages, or points that were unfavorable to
choosing the Avon+ Project, are: Ballou (2001) mentions that a logistics system is
. Maintaining an internal culture that focused little on measured in terms of availability, operational performance,
process improvement and that understood greater and service reliability. The system must have three important
productivity as being only the result of investments objectives: to reduce costs, reduce invested capital, and
in expansion, hiring new people and buying new improve service.
equipment; In Pedro’s initial diagnosis of the reception area, lean
. Capital investments of this magnitude generate concepts could help at several critical points that required
greater financial impacts on the company’s results attention:
because of the increase in fixed assets. They also have . The average unloading time was very high compared
an impact on cash flow; to benchmarks: from the arrival of the truck to its
departure, Avon took 48 hours while in the market
. Stopping the capacity to innovate in products and
the time was around 5 hours; the lack of a delivery
services: the product development and marketing
scheduling mechanism favored this unusual situation;
areas would have suffered the greatest impact at the
time; there would be fewer resources for innovating, . From analyzing the sub-activities, it is clear that there
creating products, and promoting them in an were no established movement procedures in the
increasingly competitive market; yard, and the docks were also under-dimensioned;
. Retaining bad and unproductive processes that, in . The deliveries were checked manually and there was
the guise of new buildings and equipment, could no code-reading system for entering the items;
only be covered up for a limited time. . There was also not enough space in the stock area for
As an alternative to the Avon+ Project, another receiving all the pallets, a situation aggravated by the
way to approach the problem would be to start a process lack of a routine for balancing entries and exits;
improvement project based on Pedro’s diagnosis. . Allied to all this, there were no standardized and
Considering the relevance of all the work Pedro known productivity indicators to measure the
had done in five weeks, and which gave him a broad performance of the teams.
understanding of the situation, his concern with regard to There are several points for improvement in activities
the time available to put together a new project to present to related to the receipt of goods, and the lean manufacturing
global management seems unnecessary. He could certainly concept would help by emphasizing the need to assign a
put together a project aimed at improving processes that value to activities and create order to increase the efficiency
would reduce capital investments. He would be offering of the process. Lean thinking combines concepts of lean
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production with principles of waste elimination and Picking orders: A lot of resources and a lot
value creation (Womack & Jones, 2003). Its principles of problems
are used to identify the value stream, increase quality
and reduce costs. A common tool in a lean system is the Even though more resources were allocated to this
kaizen philosophy, which states that everything can be area with the idea of serving the customer better and more
constantly improved. It involves holding an event to quickly, we see that the processes were inefficient.
improve performance in the organization, and to develop TPM (total productive maintenance) could help
a support system for continuous improvement over the because it is a work philosophy that penetrates all areas of
long term (Aken, Farris, Worley, & Doolen, 2004). The the organization, and is a management system that aims to
event must follow this sequence: (a) training to divulge eliminate all loss or waste. The ultimate goal of TPM is to
the methodology to those participating; (b) mapping maximize the use of assets:
out the flow of the area and collecting quantitative data; “Any physical asset that is required to perform a
(c) brainstorming in order to identify the actions necessary certain function will be subject to a variety of efforts.
for eliminating waste; (d) carrying out the actions; and These efforts will generate fatigue and this will cause
(e) presenting the results achieved. the deterioration of this physical asset, reducing its
resistance to fatigue. This resistance will be reduced
In addition to creating a delivery scheduling to a point where the physical asset may no longer
mechanism, Avon could standardize merchandise labels for perform as desired, in other words, it may fail”
use by all its suppliers, thus avoiding any delivery requiring (Moubray, 1992, p. 130).
manual checking. Teams should also create forecasting TPM is normally represented as pillars (Figure 4):
processes for the entry and exit of items that would avoid autonomous maintenance; planned maintenance; focused
use exceeding the area’s capacity. All this would be combined improvement; training and education; safety, health, and
with the use and monitoring of clear team performance environment; quality; early equipment management; TPM
indicators. in administration.
TPM
AUTONOMOUS MAINTENANCE
FOCUSED IMPROVEMENT
PLANNED MAINTENANCE
TRAINING & EDUCATION
EARLY MANAGEMENT
SAFETY, HEALTH &
ENVIRONMENT
OFFICE TPM
QUALITY
5S
Figure 4. Pillars of total productive maintenance.
Source: Prepared by the authors, based on Moubray (1992).
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After training, awareness raising, and the formation could also increase the use of returned items and reduce
of facilitators, the TPM philosophy could be implemented destruction costs.
in the picking area to eliminate bottlenecks in the packing Using the lean concept, a study to detect unnecessary
area. Operators could be empowered through training activities that could be eliminated, maintaining only
in basic maintenance, minor repairs, lubrication, quick operations that add value to the end activity, could increase
changes, etc., giving them greater autonomy and a sense of line efficiency and product availability.
responsibility (accountability). All of this creates new levels
of waste elimination and quality improvement, and leads to A summary of the decisions taken by Avon
real safety and productivity gains.
Cosméticos
The TPM philosophy could also help in eliminating
losses in production processes and improving overall Pedro chose not to present the Avon+ Project, but
equipment efficiency (OEE). This measure could be used in developed another project based on a reassessment of all
several areas in the search for maximum use of the installed the logistics processes and the use of tools for continuous
capacity and increased availability of machines through zero improvement. For the teacher’s knowledge and to enable
breakage. discussion about other improvement tools, see Table 1 for
a summary of the methodologies that were applied, the
Reverse logistics: A little explored potential actions implemented, and a description of the results that
were achieved.
until then
Product reception
The fact that the service was outsourced would not be
a problem per se, as long as service levels were agreed between
Avon and the logistics operator: deadlines for withdrawals, Results: Projects based essentially on the 6§ (six sigma)
evaluation of the conditions, and re-incorporation into methodology and originating from an initial kaizen made
inventory. We note that this service was not very effective by it possible to reduce the average time, which initially was
the fact that they mention that often when the product was at least 48 hours or more, in 2016, to a new standard of 3
reincorporated, it was no longer fit for sale. hours in 2017, corresponding to a reduction of more than
90% in the number of hours. The drastic improvement
Assuming that the volume was high, internalizing the enabled a restructuring that reduced the number of people
work of consolidating and processing returns could speed and machines in the area by 38%. Figures 5 and 6 below
up the use of these items and reduce shortages in the order show the evolution of the waiting time indicators, which
picking process. A study of the layout of the reverse picking reduced by 90% compared to 2014, while productivity
line showed that by incorporating the activity into the line increased by 67%.
Evolution over 2014 Evolution over 2014
Average waiting time in reception area Number of units received per operator (productivity)
164% 167%
135%
2014 2015 2016 2017
-38%
-58%
-90% 2014 2015 2016 2017
Figure 5. Change in waiting times. Figure 6. Evolution of productivity.
Source: Prepared by the authors. Source: Prepared by the authors.
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Table 1. Summary of the actions per area and results.
Main
Area methodologies Actions implemented Main results
applied
Yard management: identifying points that do not add value. Color-based
identification system created for each stage in unloading, and an audio
system for communicating with the drivers.
Lean six sigma
90% reduction in the average waiting
Dock management: system introduced for identifying boxes and palettes
Product Kaizen time for unloading in the area.
using Avon’s own printed barcode for use by all suppliers.
reception SIPOC 67% increase in productivity (units
Resource allocation: standardizing activities in the reception areas and received per operator).
G-ROT introducing KPIs.
Scheduling suppliers: a dock schedule was created for suppliers to establish
their delivery time.
Management of products in consignation: the Yellow Belt project for
actively managing obsolete and consigned products.
80% reduction in the value of losses per
Lean six sigma Mapping out and identifying bottlenecks: a movement flow diagram inventory adjustment.
provided visibility to all operation handling.
Warehousing Kaizen Increase in the accuracy of inventories
and movement Stock occupancy: the Green Belt project was created for balancing the for level six sigma: 99.9%.
DMAIC entries and exits of the operation in order to maintain the stock occupancy
G-ROT level below 90%. 212% increase in productivity in the
area.
Project created for deciding on quotas per line/product segment, by which
each product manager/planner would have a limited reception space.
Elimination of the packing operation bottleneck using TPM: training,
formation of facilitators, operator empowerment and autonomy for basic Increase in the OEE (efficiency rate of
Lean six sigma maintenance, small repairs, lubrication, cleaning, quick changes, and the operation machinery) from 60% to
others. over 90%.
5s
Adoption of the OEE and elimination of losses caused by stoppages: more Reduction in turnover and absenteeism
Kaizen than four hundred types of loss detected and eliminated. in the operation by more than 80%.
DMAIC SMED training — quick change for reducing losses and dispersion, and 32% increase in specific productivity in
Picking orders balancing the campaign exchange indicators. the area (picking/hour/px).
SMED
Project for adjusting the workday to boost morale and reduce turnover, 82% increase in the order processing
Design thinking absenteeism, and accidents. capacity in the area (throughput).
TPM Routine management: operational areas started having daily 20-minute 58% reduction in time taken to change
G-ROT meetings to discuss indicators and solve problems. a campaign.
Creation of skills and competencies with the headquarters of the HR Level 5 sigma reached in process quality.
department for improving motivation and engagement.
Creation of a strategic transportation plan, with guidelines for the area to
evolve services and reduce costs.
Sales and transportation meetings introduced for sharing activities and Level 5 sigma reached in delivery
anticipating actions. punctuality (OTD — on time deliveries)
at 99.3%.
Transporting Lean six sigma Monitoring deliveries using GPS and smart delivery systems.
and delivering 7 percentage points increase in large
orders G-ROT Sales reps categorized and improvements in the services on offer. vehicle loads.
‘Milk run’ methodology set up to improve the load levels of trucks and 75% reduction in claims in the most
reduce transportation costs. critical location (RJ).
Study for reducing claims, training personnel, and the use of technology
for tracking deliveries.
74% reduction in products unavailable
Lean Reverse logistics process internalized to improve the return and use of for picking orders.
Reverse devolved products.
TPM 21% reduction in expenditure on
logistics
G-ROT Study of the layout for allocating reverse logistics processes on the lines. reverse logistics relative to the values of
returned sales.
Note. Source: Prepared by the authors.
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Warehousing and moving products Picking orders
Results: There was an increase in efficiency in the Results: Figures 9 and 10 show, respectively, the
product transfer process between DCs, with an accuracy evolution in the performance indicators that measure
of over 99.9%. Excess inventory was reduced and greater productivity in the order picking area (increased by 32% in
synergy was created between the planning areas, which led the period), and the hourly capacity of the whole picking
to management in the warehouse area developing a culture process (increased by 82% in the period).
of simple techniques for calculating productivity, and a
mindset of continuous process improvement. Figures 7 Evolution over 2014
and 8 show, respectively, the results of the 80% reduction Number of units separated in the picking area per
in inventory adjustments, due to the six sigma accuracy active operator (productivity)
that was achieved, and the evolution in productivity in the 132%
124%
warehouse and order handling area, which grew by more 106%
than 200% in the period.
Evolution over 2014
Inventory adjustments (losses in R$)
2014 2015 2016 2017
Figure 9. Evolution in picking productivity.
Source: Prepared by the authors.
Evolution over 2014
2014 2015 2016 2017
Hourly production of the system (throughput)
182%
-58% -59%
-80%
126%
Figure 7. Evolution in inventory adjustments. 113%
Source: Prepared by the authors.
Evolution over 2014 2014 2015 2016 2017
Number of units moved per operator (productivity)
Figure 10. Evolution in production/hour.
212% Source: Prepared by the authors.
204%
120%
Transporting and delivering orders
Results: (a) Delivery punctuality: about 30% of the
volume of orders that were delivered changed hands, which
raised the rate of goods delivered within the promised
time. There were improvements in tracking deliveries via
2014 2015 2016 2017
GPS and delivery intelligence systems using SaaS (software
Figure 8. Evolution in productivity. as a service) with no investment in IT infrastructure;
Source: Prepared by the authors. (b) Satisfaction of the sales reps: sales rep groups were
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